Question 4: (Answer in 200-400 words in total PLEASE ANSWER THIS HOMEWORK QUESTION The purpose of the Paris agreement was to set a coordination mechanism between countries and limit carbon emissions at a global level. In this period of climate emergency, high carbon emissions and the non respect of Paris agreement by numerous countries, have been criticized in the newspapers and described as dangerous for future generations. From a game theory perspective, respecting or not the Paris agreement can be modeled as a strategic game. Let’s assume that we have two countries who can choose between option 1: not respecting and exiting the Paris agreement (increase their carbon emission); and option 2: respecting the Paris agreement (limit their carbon emission). The following matrix gives the payoffs of each choice, where in each cell, the first number is the payoff of country A and the second number is the payoff of country B. Country B Repect the agreement Exiting the agreement Country A Repect the agreement 6, 6 2,8 Exiting the agreement 8,2 4,4 Explain the strategic interactions in this game (answer in 70-130 words). Find the equilibrium by elimination of dominated strategies (answer in 70-130 words). Does individual rationality lead to a socially desirable outcome? Why? (answer in 70-130 words)

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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Question 4: (Answer in 200-400 words in total

PLEASE ANSWER THIS HOMEWORK QUESTION

The purpose of the Paris agreement was to set a coordination mechanism between countries and limit carbon emissions at a global level. In this period of climate emergency, high carbon emissions and the non respect of Paris agreement by numerous countries, have been criticized in the newspapers and described as dangerous for future generations. From a game theory perspective, respecting or not the Paris agreement can be modeled as a strategic game. Let’s assume that we have two countries who can choose between option 1: not respecting and exiting the Paris agreement (increase their carbon emission); and option 2: respecting the Paris agreement (limit their carbon emission). The following matrix gives the payoffs of each choice, where in each cell, the first number is the payoff of country A and the second number is the payoff of country B.

	Country B
	Repect the agreement	Exiting the agreement
Country A	Repect the agreement	6, 6	2,8
Exiting the agreement	8,2	4,4

Explain the strategic interactions in this game (answer in 70-130 words).
Find the equilibrium by elimination of dominated strategies (answer in 70-130 words).
Does individual rationality lead to a socially desirable outcome? Why? (answer in 70-130 words)

Definition Definition Economic decision-making framework that analyzes how different players optimize their outcomes with given pay-offs corresponding to their available strategies. The assumptions of game theory are: The number of players or competitors are finite/limited; All participants are rational The rules of the game are known to every player; and Each participant has a finite set of actions. A common way in which game theory is presented as an ( m x n ) matrix in which m represents the strategies of row player and n represents the strategies of column player. There are several limitations of game theory: Many businesses have a large number of competitors, and selecting an optimal strategy in these circumstances is difficult; Real-life business operating environments are full of uncertainty and difficult to model as a game theory; and The assumption of rationality and utility maximization isn't always an accurate portrayal of human nature.

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